-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TOglZPaR8d+EaLAZfV8nCzoRF1qOmVJgxs7nuws0wzRERxWbFn8amPXVLUduvmrE zJ/r9Ong1Kpo3BEEvwi9/A== 0000935226-02-000004.txt : 20020829 0000935226-02-000004.hdr.sgml : 20020829 20020829164439 ACCESSION NUMBER: 0000935226-02-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020721 FILED AS OF DATE: 20020829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BENIHANA INC CENTRAL INDEX KEY: 0000935226 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 650538630 STATE OF INCORPORATION: DE FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26396 FILM NUMBER: 02752987 BUSINESS ADDRESS: STREET 1: 8685 NW 53RD TERRACE CITY: MIAMI STATE: FL ZIP: 33166 BUSINESS PHONE: 3055930770 MAIL ADDRESS: STREET 1: 8685 NW 53RD TERRACE CITY: MIAMI STATE: FL ZIP: 33166 10-Q 1 form10q-04.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended July 21, 2002 or, [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-26396 Benihana Inc. ------------- (Exact name of registrant as specified in its charter) Delaware 65-0538630 ---------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8685 Northwest 53rd Terrace, Miami, Florida 33166 ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (305) 593-0770 -------------- None - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- -- Indicate by number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock $.10 par value, 3,244,479 shares outstanding at August 26, 2002 Class A Common Stock $.10 par value, 5,505,589 shares outstanding at August 26, 2002 BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FOUR PERIODS ENDED JULY 21, 2002 TABLE OF CONTENTS - ---------------------- PAGE PART I - Financial Information Condensed Consolidated Balance Sheets (unaudited) at July 21, 2002 and March 31, 2002 1 Condensed Consolidated Statements of Earnings (unaudited) for the Four Periods Ended July 21, 2002 and July 22, 2001 2 Condensed Consolidated Statement of Stockholders' Equity (unaudited) for the Four Periods Ended July 21, 2002 3 Condensed Consolidated Statements of Cash Flows (unaudited) for the Four Periods Ended July 21, 2002 and July 22, 2001 4 Notes to Condensed Consolidated Financial Statements (unaudited) 5 - 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 12 PART II - Other Information 13 - 16 BENIHANA INC. AND SUBSIDIARIES PART I - Financial Information CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share information) July 21, March 31, 2002 2002 - -------------------------------------------------------------------------------- Assets Current assets: Cash and equivalents $ 1,044 $ 5,062 Receivables 373 990 Inventories 4,311 4,097 Prepaid expenses 1,904 2,530 - -------------------------------------------------------------------------------- Total Current Assets 7,632 12,679 Property and equipment, net 76,764 61,971 Deferred income taxes, net 1,831 1,963 Goodwill, net 16,478 16,478 Other assets 5,161 5,210 - -------------------------------------------------------------------------------- $107,866 $98,301 - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 17,300 $16,921 Current maturity of bank debt 3,000 3,000 Current maturities of obligations under capital leases 605 668 - -------------------------------------------------------------------------------- Total Current Liabilities 20,905 20,589 Long-term debt - bank 7,250 3,000 Obligations under capital leases 554 705 Minority Interest 451 294 Commitments and Contingencies Stockholders' Equity: Series A redeemable convertible preferred stock - $1.00 par value; authorized - 5,000,000 shares, no shares issued Common stock - $.10 par value; convertible into Class A Common, authorized - 12,000,000 shares, issued and outstanding - 3,245,479 and 3,276,179 shares, respectively 325 328 Class A common stock - $.10 par value; authorized - 20,000,000 shares, issued and outstanding 5,502,576 and 4,151,319 shares, respectively 550 415 Additional paid-in capital 48,201 26,926 Retained earnings 29,769 46,160 Treasury stock - 10,553 and 9,177 shares, respectively, of Common and Class A stock at cost (139) (116) - -------------------------------------------------------------------------------- Total Stockholders' Equity 78,706 73,713 - -------------------------------------------------------------------------------- $107,866 $98,301 - -------------------------------------------------------------------------------- See notes to condensed consolidated financial statements BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (In thousands, except per share information) Four Periods Ended ------------------------ July 21, July 22, 2002 2001 - -------------------------------------------------------------------------------- Revenues Restaurant sales $56,723 $50,466 Franchise fees and royalties 436 469 - -------------------------------------------------------------------------------- Total Revenues 57,159 50,935 - -------------------------------------------------------------------------------- Costs and Expenses Cost of food and beverage sales 13,990 13,226 Restaurant operating expenses 33,752 28,711 Restaurant opening costs 148 687 Marketing, general and administrative expenses 4,796 4,351 - -------------------------------------------------------------------------------- Total Operating Expenses 52,686 46,975 - -------------------------------------------------------------------------------- Income from operations 4,473 3,960 Interest expense, net 117 339 Minority interest 157 (7) - -------------------------------------------------------------------------------- Income from operations before income taxes 4,199 3,628 Income tax provision 1,409 1,181 - -------------------------------------------------------------------------------- Net Income $ 2,790 $ 2,447 - -------------------------------------------------------------------------------- Earnings Per Share Basic earnings per common share $ .32 $ .34 Diluted earnings per common share $ .30 $ .33 - -------------------------------------------------------------------------------- Number of restaurants at end of period 61 58 See notes to condensed consolidated financial statements BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands, except share information)
Series A Redeemable Convertible Class A Additional Total Preferred Common Common Paid-in Retained Treasury Stockholders' Stock Stock Stock Capital Earnings Stock Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance, March 31, 2002 - $328 $415 $26,926 $46,160 ($116) $73,713 Net income 2,790 2,790 Issuance of 1,141,050 shares 114 19,090 (19,181) (23) of class A common stock for stock dividend Issuance of 4,000 shares 13 13 of common stock under exercise of options Issuance of 175,357 shares 18 1,685 1,703 of class A common stock under exercise of options Conversion of 34,700 (3) 3 shares of common stock into 34,700 shares of class A common stock Issuance of 150 shares 3 3 of class A common stock for incentive compensation Tax benefit from stock option exercises 484 484 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, July 21, 2002 $0 $325 $550 $48,201 $29,769 ($139) $78,706 - -----------------------------------------------------------------------------------------------------------------------------------
See notes to condensed consolidated financial statements BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Four Periods Ended --------------------- July 21, July 22, 2002 2001 - -------------------------------------------------------------------------------- Operating Activities: Net income $ 2,790 $ 2,447 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,997 1,537 Minority interest 157 (7) Deferred income taxes 132 87 Loss on disposal of assets 75 140 Issuance of common stock for incentive compensation 3 Change in operating assets and liabilities that provided (used) cash: Receivables 617 (81) Inventories (214) (8) Prepaid expenses 626 (52) Other assets (75) 5 Accounts payable and accrued expenses 379 (588) - -------------------------------------------------------------------------------- Net cash provided by operating activities 6,487 3,480 - -------------------------------------------------------------------------------- Investing activities: Expenditures for property and equipment (16,740) (4,886) - -------------------------------------------------------------------------------- Net cash used in investing activities (16,740) (4,886) - -------------------------------------------------------------------------------- Financing Activities: Borrowings under revolving credit facility 5,000 6,500 Proceeds from issuance of common stock under exercise of stock options 1,716 150 Repayment of long-term debt and obligations under capital leases (965) (5,279) Dividend paid on preferred stock (5) Tax benefit from stock option exercises 484 - -------------------------------------------------------------------------------- Net cash provided by financing activities 6,235 1,366 - -------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (4,018) (40) Cash and cash equivalents, beginning of year 5,062 935 - -------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 1,044 $ 895 - -------------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash paid during the four periods: Interest $ 171 $ 302 Income taxes 60 980 - -------------------------------------------------------------------------------- See notes to condensed consolidated financial statements. During the current four periods ended July 21, 2002, 34,700 shares of common stock were converted into 34,700 shares of Class A common stock. During the prior year four periods, 294,737 shares of common stock were converted into 294,737 shares of Class A common stock and 700 shares of preferred stock were converted into 105,263 shares of Class A common stock. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUR PERIODS ENDED JULY 21, 2002 AND JULY 22, 2001 (UNAUDITED) 1. GENERAL The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments at July 21, 2002 and July 22, 2001) which are, in the opinion of management, necessary for a fair presentation of financial position and results of operations. The results of operations for the four periods (sixteen weeks) ended July 21, 2002 and July 22, 2001 are not necessarily indicative of the results to be expected for the full year. Certain information and footnotes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto for the year ended March 31, 2002 appearing in the Company's Form 10-K filed with the Securities and Exchange Commission. 2. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, required that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The adoption of this statement, as amended, in the first quarter of fiscal 2002 did not have a material effect on the Company's financial statements. In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. For potential future acquisitions, recorded goodwill and intangibles will be evaluated against these new criteria and may result in certain intangibles being recorded as goodwill, or alternatively, amounts previously recorded as goodwill may be separately identified and recognized apart from goodwill. SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead will be periodically reviewed for impairment and written down and charged to results of operations only in the periods in which, and to the extent, the recorded value of goodwill and certain intangibles is determined to be more than their then fair value. The Company adopted the provisions of SFAS No. 142 effective the beginning of the first quarter of fiscal 2002. These standards only permit prospective application of the new accounting; accordingly adoption of these standards will not affect previously reported financial information. The Company reviewed goodwill for possible impairment at the end of fiscal 2002 and determined that there was no impairment. In September 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121. The new statement defines detailed criteria for assets being "held for sale". The Company adopted the provisions of this statement effective the beginning of the first quarter of fiscal 2003. Additionally, the statement further defines the reporting of discontinued operations in financial statements. The adoption of this statement in the first quarter of fiscal 2003 did not have a material effect on the Company's financial statements. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUR PERIODS ENDED JULY 21, 2002 AND JULY 22, 2001 (UNAUDITED) 3. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current fiscal year presentation. 4. INVENTORIES Inventories consist of (in thousands): July 21, March 31, 2002 2002 -------- --------- Food and beverage $1,427 $1,568 Supplies 2,884 2,529 ------ ------ $4,311 $4,097 ====== ====== 5. EARNINGS PER SHARE Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period. The diluted earnings per common share computation includes dilutive common share equivalents issued under the Company's various stock option plans and dilutive convertible preferred stock. The following data shows the amounts (in thousands) used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock. Four Periods Ended ------------------------- July 21, July 22, 2002 2001 -------- -------- Net income $2,790 $2,447 Less preferred dividends - (5) -------- -------- Income for computation of basic 2,790 2,442 earnings per common share Plus preferred dividends - 5 -------- -------- Income for computation of diluted earnings per common share 2,790 $2,447 ====== ====== BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUR PERIODS ENDED JULY 21, 2002 AND JULY 22, 2001 (UNAUDITED) Four Periods Ended ------------------------ July 21, July 22, 2002 2001 -------- -------- Weighted average number of 8,691 7,185 common shares used in basic earnings per share Effect of dilutive securities: Stock options 751 46 Convertible preferred stock - 270 -------- -------- Weighted average number of common shares and dilutive potential common stock used in diluted earnings per share 9,442 7,501 ======== ======== 6. RESTAURANT OPERATING EXPENSES Restaurant operating expenses consist of the following (in thousands): Four Periods Ended ------------------------- July 21, July 22, 2002 2001 -------- -------- Labor and related costs $21,300 $17,931 Restaurant supplies 1,066 953 Credit card discounts 969 852 Utilities 1,267 1,173 Occupancy costs 3,192 2,783 Depreciation and amortization 1,921 1,446 Other operating expenses 4,037 3,573 ------- -------- Total restaurant operating expenses $33,752 $28,711 ======= ======= 7. STOCK DIVIDEND On June 7, 2002, the Board of Directors declared a 15% stock dividend in Class A stock for both the Class A and common shares. The stock dividend was paid on August 12, 2002 to holders of record July 15, 2002. As a result, basic and diluted earnings per common share have been adjusted as if the stock dividend had been in existence for each period presented. 8. SYNTHETIC LEASE On June 12, 2002, the Company terminated its master lease agreement with Wachovia Bank, N.A. and two other banks. The aforementioned master lease agreement had enabled financing in new acquisition and construction. Upon termination, the Company purchased at cost the three teppanyaki Benihana restaurants previously financed under the agreement. A portion of the purchase price was provided with replacement financing under the Company's revolving credit facility. BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Our revenues consist of sales of food and beverages at our restaurants and licensing fees from franchised restaurants. Cost of restaurant food and beverages sold represents the direct cost of the ingredients for the prepared food and beverages sold. Restaurant operating expenses consist of direct and indirect labor, occupancy costs, advertising and other costs that are directly attributed to each restaurant location. Restaurant opening costs include rent paid during the development period, as well as labor, training and certain other pre-opening charges which are expensed as incurred. Restaurant revenues and expenses are dependent upon a number of factors including the number of restaurants in operation, restaurant patronage and the average check amount. Expenses are additionally dependent upon commodity costs, average wage rates, marketing costs and the costs of interest and administering restaurant operations. Revenues and net income were higher for the four periods ended July 21, 2002 compared to the corresponding period a year ago. For the current four periods, revenues increased 12.2% and net income increased by 14.0% as compared to the corresponding four periods a year ago. Earnings per diluted share amounted to $0.30, based on 9.4 million average shares and equivalents outstanding, compared with $0.33, based on 7.5 million average shares and equivalents in the comparable period a year ago. Per share figures are adjusted for the 15% stock dividend of Class A shares declared during the current four periods. The greater number of outstanding average shares and equivalents reflects a 1 million Class A common share public offering in December 2001, as well as option exercises and the effect of a higher stock price on the computation. The increase in net income was tempered by higher labor and related costs. Labor costs increased due to increases in minimum wages not fully offset by price increases during the current four periods. Benefits costs also increased during the current four periods as a result of unusually large increases in both the number and amounts of claims in the Company's self-insured health plan. We have instituted menu price increases in selected markets to compensate for the wage increases, and have increased the share of health care premiums contributed by employees. REVENUES Four periods ended July 21, 2002 compared to July 22, 2001 -- The amounts of sales and the changes in amount and percentage change in amount of revenues from the previous fiscal year are shown in the following tables. Four Periods Ended -------------------------- July 21, July 22, 2002 2001 -------- -------- Net restaurant sales $56,723 $50,466 Franchise fees and royalties 436 469 ------- ------- Total Revenues $57,159 $50,935 ======= ======= Four Periods Ended ------------------------- July 21, July 22, 2002 2001 -------- -------- Amount of change in total revenues from previous year $ 6,224 $ 3,866 Percentage of change from the previous year 12.2% 8.2% BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Restaurant revenues increased in the four periods ended July 21, 2002 as compared to the equivalent periods ended July 22, 2001. Revenues increased for the current four periods due to increases from new restaurants of $5,224,000. Additionally, comparable sales increased approximately 5% for the current four periods compared to the comparable equivalent period. Sales growth in the current four periods was negatively affected by the closing of the Marina del Rey teppanyaki restaurant in August 2001 after its lease expired and the closing of a Doraku restaurant in March 2002 principally due to poor traffic at the mall in which it was located. COSTS AND EXPENSES Four periods ended July 21, 2002 compared to July 22, 2001 -- Costs of food and beverage sales, which are generally variable with sales, directly increased with changes in revenues for the four periods ended July 21, 2002 as compared to the equivalent periods ended July 22, 2001. The following table reflects the proportion that the various elements of costs and expenses bore to sales and the changes in amounts and percentage changes in amounts from the previous year's four periods. Four Periods Ended ------------------------- July 21, July 22, 2002 2001 -------- -------- COST AS A PERCENTAGE OF RESTAURANT SALES: Cost of food and beverage sales 24.7% 26.2% Restaurant operating expenses 59.5% 56.9% Restaurant opening costs .3% 1.4% Marketing, general and administrative expenses 8.5% 8.6% AMOUNT OF CHANGE FROM PREVIOUS COMPARABLE PERIOD (IN THOUSANDS): Cost of food and beverage sales $ 764 $ 164 Restaurant operating expenses $5,041 $3,277 Restaurant opening costs $ (539) $ 92 Marketing, general and administrative expenses $ 445 $ 390 PERCENTAGE CHANGE FROM PREVIOUS COMPARABLE PERIOD: Cost of food and beverage sales 5.8% 1.3% Restaurant operating expenses 17.6% 12.9% Restaurant opening costs (78.5%) 15.5% Marketing, general and administrative expenses 10.2% 9.8% BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The cost of food and beverage sales increased in total dollar amount in the current four periods and decreased when expressed as a percentage of sales compared to the equivalent period in the prior year. The decrease in the percentage of cost of food and beverage to sales resulted from lower commodities costs, principally shrimp costs, in the current four periods compared to the prior year equivalent period. Restaurant operating expenses increased in absolute amount and when expressed as a percentage of sales in the current four periods when compared to the comparable period a year ago. The increase was primarily attributable to an increase in labor and related costs. Labor increased largely as a result of increased sales volume, but also as a result of labor rate increases. The increase in rate was attributable to a legislated minimum wage increase in California and normal labor inefficiencies in the opening of new restaurants. Payroll taxes and benefits also increased in the current four periods when compared to the comparable periods a year ago. The increase was attributable to an increase in both a rise in the number and amounts of claims in the Company's self-insured health plan. Additionally, higher insurance rates caused an increase in property and casualty insurance costs in the current four periods compared to the comparable period a year ago. Restaurant opening costs decreased in the current four periods ended July 21, 2002 compared to the prior year equivalent periods. The decrease was attributable to pre-opening expenses in the prior year relating to three Haru restaurants and two Benihana Teppanyaki restaurants which opened during the prior fiscal year. Restaurant opening costs associated with opening the two Benihana Teppanyaki restaurants in the current fiscal year were substantially less than the prior year comparable period. Marketing, general and administrative costs increased in absolute amount, but decreased when expressed as a percentage of sales in the current four periods compared to the comparable period a year ago. The increase is mainly attributable to planned advertising expenditures in the current four periods when compared to the comparable period a year ago. Interest expense decreased in the current four periods when compared to the comparable periods of the prior year. The decrease in the current four periods was attributable to a decrease in the interest rates on our borrowings under our credit facility as well as a decrease in the average outstanding borrowings in the current four periods compared to the previous comparable periods. Our effective income tax rate increased in the four periods to 33.6% from 32.6% in the prior year's four periods. The increase was due to a increase in net income in the current four periods coupled with a constant amount of net federal tax credit for FICA taxes paid on reported tip income in both the current and prior year four periods. OUR FINANCIAL RESOURCES Cash flow from operations had been the primary source to fund our capital expenditures before we accelerated the development of new restaurants. Since we have accelerated our building program, we are relying more upon financing obtained from financial institutions. We have financed acquisitions principally through the use of borrowed funds. BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We have borrowings from Wachovia Bank, N.A. under a term loan and we have a revolving line of credit facility. The line of credit allows us to borrow up to $15,000,000 through March 31, 2004 and at July 21, 2002, we had available $10,000,000 under the revolving line available. We had $5,250,000 outstanding at the end of July 21, 2002 under the term loan which is payable in quarterly installments of $750,000 until the term loan matures in March 2004. The interest rate at July 21, 2002 of both the line of credit and the term loan was 2.87%. We have the option to pay interest at Wachovia's prime rate plus 1%. The interest rate may vary depending upon the ratio of the sum of earnings before interest, taxes, depreciation and amortization to our indebtedness. The loan agreements limit our capital expenditures to certain amounts, require that we maintain certain financial ratios and profitability amounts and prohibit the payment of cash dividends. To finance our new restaurant development, we had entered into a master lease agreement with Wachovia Bank, N.A. and two other banks. The master lease agreement enabled financing for up to $25,000,000 in new restaurant acquisition and construction. Management determined that more favorable rates were available under our line of credit and accordingly we terminated this arrangement on June 12, 2002 by borrowing $5,000,000 from the line of credit and using $8,000,000 in cash to pay off the outstanding facility balance and acquiring the three restaurants financed under the facility. Since restaurant businesses generally do not have large amounts of inventory and accounts receivable, there is no need to finance them. As a result, many restaurant businesses, including our own, operate with negative working capital. The following table summarizes the sources and uses of cash and cash equivalents (in thousands): Four Periods Ended ---------------------- July 21, July 22, 2002 2001 -------- -------- Cash provided by operations $ 6,487 $ 3,480 Cash (used in) investing activities (16,740) (4,886) Cash provided by financing activities 6,235 1,366 --------- -------- Increase in cash and cash equivalents $ (4,018) $ (40) ========= ======== Operating Activities Cash provided by operations increased during the four periods ended July 21, 2002 compared to equivalent periods in the previous year. The increase resulted mainly from an increase in net income and from the change in cash provided by operating assets and liabilities in the current four periods when compared to the previous comparable period. Investing Activities Expenditures for property and equipment increased during the four periods ended July 21, 2002 by $11,854,000 over the prior comparable period to $16,740,000. Approximately $13 million of the expenditures were for the purchase of property and equipment of three teppanyaki restaurants previously financed under the master lease agreement which was terminated June 12, 2002. BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financing Activities During the current four periods there were stock options exercises with cash proceeds to the Company of $1,716,000 as compared to $150,000 in the previous comparable period a year ago. Our total indebtedness increased by $4,035,000 during the four periods ended July 21, 2002 as compared to the end of fiscal 2002. We borrowed $5,000,000 under the revolving line of credit, paid down $750,000 of the term loan and repaid $215,000 of leases that are considered to be capital in nature. Forward-Looking Statements This quarterly report contains various "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our expectations or beliefs concerning future events, including unit growth, future capital expenditures, and other operating information. A number of factors could, either individually or in combination, cause actual results to differ materially from those included in the forward-looking statements, including changes in consumer dining preferences, fluctuations in commodity prices, availability of qualified employees, changes in the general economy, industry cyclicality, and in consumer disposable income, competition within the restaurant industry, availability of suitable restaurant locations, harsh weather conditions in areas in which we and our franchisees operate restaurants or plan to build new restaurants, acceptance of our concepts in new locations, changes in governmental laws and regulations affecting labor rates, employee benefits, and franchising, ability to complete new restaurant construction and obtain governmental permits on a reasonably timely basis and other factors that we cannot presently foresee. The Impact of Inflation Inflation has not been a significant factor in our business for the past several years. We have been able to keep increasing menu prices at a low level by strictly maintaining cost controls. A possible increase to the minimum wage is being considered by United States Congress; any such increase will affect us, as well as most other restaurant businesses. We do not know if or when the increase will take effect nor have we evaluated whether the increase would be material if enacted into law. Market Risks We are exposed to certain risks of increasing interest rates and commodity prices. The interest on our indebtedness is largely variable and is benchmarked to the prime rate in the United States or to the London interbank offering rate. We may protect ourselves from interest rate increases from time-to-time by entering into derivative agreements that fix the interest rate at predetermined levels. We have a policy not to use derivative agreements for trading purposes. We had a derivative agreement which expired May 1, 2002 without further obligation by the Company. We purchase commodities such as chicken, beef, lobster and shrimp for our restaurants. The prices of these commodities may be volatile depending upon market conditions. We do not purchase forward commodity contracts because the changes in prices for them have historically been short-term in nature and, in our view, the cost of the contracts is in excess of the benefits. Seasonality of Our Business Our business is not highly seasonal although we do have more patrons coming to our restaurants for special holidays such as Mother's Day, Valentine's Day and New Year's. Mother's Day falls in our first fiscal quarter of each year, New Year's in the third quarter and Valentine's Day in the fourth quarter. BENIHANA INC. AND SUBSIDIARIES PART II - Other Information Item 1. Legal Proceedings Reference is hereby made to our Annual Report on Form 10-K for the fiscal year ended March 31, 2002 for a description of certain legal proceedings. Item 6. Exhibits and Reports on Form 8-K (a) Reports on Form 8-K - None (b)(i) Exhibit 99.1 - Officer's Certification (b)(ii) Exhibit 99.2 - Officer's Certification SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Benihana Inc. ------------------------------- (Registrant) Date August 29, 2002 /s/ Joel A. Schwartz ------------------------ ------------------------------- Joel A. Schwartz President and Chief Executive Officer Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Benihana Inc. (the "Company") on Form 10- Q for the period ended July 21, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joel A. Schwartz, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joel A. Schwartz - ----------------------------------- Joel A. Schwartz President and Chief Executive Officer August 29, 2002 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Benihana Inc. (the "Company") on Form 10-Q for the period ended July 21, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael R. Burris, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Michael R. Burris - ------------------------------------ Michael R. Burris Chief Financial Officer August 29, 2002 -----END PRIVACY-ENHANCED MESSAGE-----